RBI Interest Rate on Advances Directions 2025 – Key Changes

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  • Last Updated on 3 October, 2025

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RBI Interest Rate on Advances Directions 2025

Circular No.DOR.CRE.REC.51/13.03.00/2025-26, Dated: 29.09.2025

1. Introduction

The Reserve Bank of India (RBI) has notified the Reserve Bank of India (Interest Rate on Advances) (Amendment Directions), 2025, bringing important changes to the regulatory framework on how banks determine and adjust spreads on lending rates. These amendments aim to strengthen transparency, improve borrower choice, and align lending practices with fair market standards.

2. Flexibility in Reducing Spread Components

Under the revised guidelines, banks are now allowed to reduce other spread components earlier than the three-year period, provided such decisions are taken on justifiable and non-discriminatory grounds. This move ensures that reductions in lending spreads can be passed on to borrowers more quickly, thereby promoting fairness in lending and enabling banks to adapt to evolving market conditions.

3. Borrower Option to Switch to Fixed Rate

Another significant change introduced in these directions is that Regulated Entities (REs) may offer borrowers an option to switch to a fixed interest rate at the time of reset. This provision is subject to a Board-approved policy, ensuring consistency in application while giving borrowers more control over their repayment structures. It also helps mitigate uncertainties in a fluctuating interest rate environment.

4. Policy Framework and Accountability

The directions mandate that banks and other regulated entities must frame a comprehensive internal policy, approved by their Boards, to govern the reduction of spreads and the borrower’s option to switch interest rates. This ensures accountability, uniform implementation, and safeguards against arbitrary decisions. The RBI’s emphasis on a policy-driven approach reinforces the principle of transparency and non-discrimination in lending practices.

5. Conclusion

The amendments under the Interest Rate on Advances Directions, 2025 are a progressive step towards making India’s credit ecosystem more borrower-friendly. By allowing banks to reduce spreads earlier, and by granting borrowers the option to switch to fixed rates, the RBI has enhanced flexibility, fairness, and transparency in lending. These measures are expected to strengthen trust between borrowers and lenders while ensuring a balanced and resilient financial system.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied